The Left and Taxation - the Impact of Electoral Systems

This paper is concerned with the effect of the ideological composition of governments on the structure of taxation systems. Earlier research has argued that left-wing governments tax more progressively, but more recent empirical work has challenged this conclusion. The now dominant approach instead posits that the left still spends progressively but taxes regressively. Left governments finance redistribution via regressive taxes, most notably taxes on consumption. I further refine this argument. I argue that the left actually employs different modes of redistribution depending on the strategic context, which is shaped by the electoral system. A majoritarian system introduces more uncertainty for a left government in two ways: volatility caused by malapportionment and by granting less influence to the opposition. In majoritarian systems, left government leads to a more progressive tax system with a heavier emphasis on income tax and less on excise and consumption. In proportional representation systems, the left taxes consumption heavier and income lighter. Using a new dataset on the composition of government revenues covering thirty-one countries in Western Europe, North and South America, Australia, New Zealand, and Japan between 1870 and today, I show that in the time period leading up to the Second World War, the impact of having a left-wing head of government is different depending on the electoral system.